A Note On Interbank Transactions In A Forex Market

An interbank transaction classification can be done into different types in accordance with the day on which it is settled.

  • Value Today: If an agreement transaction is done and executed on the same day, it is commonly referred as a cash or ready transaction.
  • The Spot transaction: In this, the delivery takes place two days after the meeting date.
  • The Forward transaction: Here the delivery takes place at a pre-fixed future date, even after months.

Usually, the forward rates available at either premium or discount margins are expensive compared to the spot one. The difference between these rates is called as ‘forward margins or swap points’. At times, the forward rate is same as or at par with the spot rate.

The factors on which Spot exchange rates depends

  1. The residue of payments:
  • Indicates the value demand for source and request of foreign exchange. Both physical and non-physical supply for exchange is termed as export and Imports generate interest for foreign transactions.
  • The exporters give foreign money to market and receive local currency in return. Imports made into a country can immensely accelerate the flow of local currency into the forex market.
  • When the residue of payments remains low, it signals that request for the local money is lighter than its source and so its market value becomes down. In contrast to this, if the residue is in surplus, the request for the currency is greater than the source. This gains the value the currency.
  1. Inflation:
  • This condition suddenly upsurges the domestic rates of the products. As a result, exports may decline which further results in the fall of the external value of the cash.
  1. Interest amount:
  • This greatly affects the short-term movement of the capital. If there accounts a situation when the interest amount rises at the central level, it draws all the funds deposited for a short period from all other centers and thereby increase the value and request for the currency. Such a condition may be exploited to attract the foreign funds.
  1. Money source:
  • Increase in money source causes inflation in the country and even money spend on the foreign items will stay large.
  1. Income of a country:
  • Increased income results in increased purchasing power of the residents. This leads to a condition for more goods produced in a country and increases chances of surplus exports. But often, this process is too slow, resulting in more imports and increased flow of local money to foreign exchange which results in a condition similar to inflation.
  1. Resource findings:
  • When a country is able to find its underlying resources, the particular currency value gains.

There are also other factors like political issues that may influence the currency value of a country and its demand in forex markets.